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Ride-sharing services and their mobile apps have become popular in bigger cities where getting a cab can be difficult. They provide an alternative to public transportation or taxis.
But now the companies have been hit with a cease-and-desist from the California Public Utilities Commission.
The state claims the service is essentially a taxi and should be licensed and permitted like other transportation.
The startups, including Lyft, Sidecar, and Tickengo, don't agree.
This case isn't just about ride-sharing. It's also about the difference between how startup tech companies see themselves versus how regulators see them.
The ride-sharing companies say what they offer isn't a taxi service since riders need to specify a destination, pay an amount determined by an algorithm rather than by the company, and can choose not to pay.
The government says that driving people around and having them pay a fee is something that requires a permit.
It's true that a lot of current legislation wasn't written with technology in mind and that can mean innovations fall within a no-man's-land of when it comes to regulation. It can also mean some technologies get put into categories they thought they had avoided.
This isn't the only area where technology-based startups are having trouble reconciling their need to innovate with laws that aren't accommodating.
Issues in data privacy are a big deal for companies that use customer data to improve their services and make money with ads. Regulations sometimes catch new and beneficial companies that fall within an interpretation of the law rather than the letter itself.
In this specific debate it's also unclear what kind of resources the state has to enforce its requests.
A similar service called Uber, which also uses smartphones to get ride-sharing business, received a similar cease-and-desist two years ago, reports the San Francisco Chronicle. The company claims it meets state requirements and has continue to operate unimpeded.
Whether other companies will be able to survive the same way is unclear. In the meantime, rides will continue.